For The Week of June 10

How To Easily Increase LTV

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🚀 This Week's Growth Hack: How To Easily Increase LTV

Whether you run a subscription business or not, here’s a trick that’s almost too good not to implement it ASAP: the Monthly to Annual Plan Pricing Trick. It’s a game-changer for boosting your customer lifetime value (LTV) with minimal effort, even if you don’t have a subscription business.

Here’s the gist: Price your annual plan (or a bundle of your products) slightly higher than the average LTV of your monthly users (or your average order value if you don’t have a subscription business). Say your average customer sticks around for four months on your subscription offer. Set your annual plan at the cost of about five months.

Why does this work? By doing this, you can boost the LTV of those users by 25%—a significant increase for such a simple adjustment. Daniel Layfield implemented this at Codecademy, and it was one of their most effective tactics. Not only did it shift a substantial number of users to long-term plans, but it also increased LTV, reduced churn, and helped them collector more cash quickly.

How to spot this trick in action: Take a look at the pricing strategies of mature subscription businesses. You can often guess their user retention rates by comparing their monthly and annual pricing.

  • Netflix: Only offers monthly plans. This implies their average user stays for over 12 months.

  • Headspace: $12.99 per month vs. $69.99 per year. The ratio is 5.39, indicating monthly users likely stay for around four months.

  • Calm: $14.99 per month vs. $69.99 per year. The ratio is 4.67, suggesting monthly users probably stick around for about three to four months.

My Signature Examples

  1. Marketing Agency: Offer a discounted annual retainer package. If your clients typically stay for six months, price your annual package at the equivalent of eight months. This encourages clients to commit longer, boosting your LTV and reducing churn.

  2. E-Commerce Brand: Introduce product bundles that reflect the monthly-to-annual pricing strategy. For instance, if your average order value is $100, then create a bundle that offers a cheapie low cost gift-with-purchase if they spend $125 or say spend $150 and get 16% off, effectively increasing your revenue by 25% …

  3. SaaS Brand: Implement an annual plan that offers a few months free compared to the monthly subscription. If your average customer subscribes for six months, price your annual plan at the equivalent of eight months, incentivizing long-term commitment.

Takeaway: Great marketers always look for simple yet effective ways to increase LTV and AOV. This pricing trick is a perfect example of that. How will you use it to grow your business this week?

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